Getting a mortgage after bankruptcy

Find out what your options are for getting a mortgage after bankruptcy.

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Some lenders will approve applicants with a bad credit history

We understand that the sense of freedom, pride and independence that comes with owning your own home is priceless. Our brokers are frequently approached by individuals wanting to obtain a new mortgage after bankruptcy and enjoy all the benefits that homeownership offers. All types of bad credit can make obtaining a mortgage more complicated and bankruptcy is no exception. Some mortgage lenders will decline any applicants who do not have a perfect credit record, however there are lenders who will consider and approve applicants with more complex credit histories.

Although the road to securing a mortgage post-bankruptcy won’t necessarily be an easy one, it is still possible. Whether you have had a mortgage application denied by a mainstream lender or are just starting to explore the options available to you post-bankruptcy, here are some of the most important pieces of information that you need to know before you begin approaching lenders and submitting new mortgage applications.

How long will I need to wait to obtain a new mortgage after bankruptcy?

If you have experience of bankruptcy and are not sure whether you will ever be able to obtain a mortgage, you certainly are not alone. We have seen too many instances where potential homeowners simply have not been given any information on this topic, which has caused a lot of undue stress, worry and concern.

You cannot apply for any type of credit including a mortgage until your bankruptcy has been discharged. This will usually take around 12 months but it could be less depending on the decision made by the courts. When you have been discharged, you will likely find that most lenders won’t start to consider you as a trustworthy lending prospect for several years.

In terms of offering mortgages for discharged bankrupts, each individual lender will have its own set of criteria. Some lenders will consider applicants immediately after discharge but it is important to note that their criteria will be strict, you will need to have a sizeable deposit and the rates and fees will be markedly higher than those for other mortgage products.

The loan to value (LTV) ratios that lenders will be able to offer you will increase as more time passes between the date of your discharge and the submission of your mortgage application. Individuals who have been discharged for more than 5 years and have maintained a good credit history might well discover that they can borrow up to 95% LTV just like any other potential borrower. Individuals discharged for 2 years will almost certainly find the application process much more complex but, in most cases, will be able to obtain a mortgage provided that they can also put in a deposit of at least 25%.

How can I ensure that I am in the best position to secure a new mortgage after experiencing bankruptcy?

The good news is that there are several things that you can do personally to give yourself the best possible chance of securing approval for a new mortgage in the future.

  • Check your credit reports

All potential homeowners should be checking their credit reports regularly. Lenders use 3 credit reference agencies: Equifax, Call Credit, and Experian. The information held by each agency can vary so it is paramount that you check each one and correct any errors that could prevent you from obtaining a mortgage.

Our brokers have seen many borrowers whose credit files do not contain accurate discharge or settlement dates. The main reason for this is an error on the part of the credit reference agency and can result in eligible borrowers having their mortgage applications denied by lenders because it looks as though there are new defaults and/or outstanding balances. Don't let this easily fixable problem prevent you from securing a mortgage on your dream property.

  • Determine your eligibility

Discussing your options with an experienced professional can help to put your mind at ease and devise an action plan to help you to obtain the right mortgage for you at the right time. They will be able to tell you whether you qualify for a mortgage in your current circumstances and advise you as to any changes you should make to boost your eligibility.

  • Carefully work to rebuild your credit score

If your advisor informs you that you are not currently eligible for a new mortgage, don’t be disheartened. They will also provide you with the information you need to improve your credit score and ensure you know exactly what you need to do to qualify as soon as possible.

Remember, every year that passes makes your past bankruptcy experiences less relevant and this means that you will be offered more competitive terms, rates and fees by your future lender. It can be frustrating to have to wait, but using this time to improve the health of your credit file will help you to secure a good deal in the future.

  • Increase your deposit

Saving for a deposit on a home is difficult at the best of times but offering a more substantial figure up front can improve your chances of being approved by your lender. The chances of most people being approved for a mortgage after being discharged from bankruptcy for just 1 year are slim, however, if you were to meet your lender’s criteria and had a 40% deposit, you could very well find yourself in a position to secure a 60% mortgage and purchase your new home.

  • Expect higher interest rates

As most lenders will view you as a risk, they will want to protect themselves by securing a higher return on the figure you have borrowed from them. Expecting higher interest rates and factoring them into your affordability calculations will prevent any disappointment further into your application journey.

  • Close dormant credit accounts

If you have any open credit accounts that you no longer use, work to close them as soon as possible. In addition to looking into how much money you currently owe to creditors, lenders might also take into account how much credit you have available to you. Lenders will typically prefer to see a smaller number of well-managed credit accounts over many active, yet unused accounts.

The Hunters Report

If you were discharged more than 6 years ago, there should be no trace of previous credit issues on your file. Importantly, however, this does not mean that you can apply for a new mortgage with any lender. You might pass initial credit tests with ease but you could still be declined following the submission of a full application because of something called the Hunters Report.

The Hunters Report is a database containing the details of everyone that has experienced bankruptcy in the UK. This list includes individuals who have been discharged for more than 6 years. This report is checked by lenders but it generally isn’t taken into account during the preliminary credit scoring process. This means that post-bankruptcy applicants can be initially accepted for a new mortgage before being declined as additional credit checks highlight their past bankruptcy issues.

This can be extremely frustrating, which is why it is important that all potential borrowers who have a history of bankruptcy are aware of this database before they submit a full mortgage application. Remember, there are still lenders who will consider your application despite your past issues with bankruptcy so it is not necessarily something to worry about.

The impact post-bankruptcy credit issues can have on new mortgage applications

Any credit issues that occurred before your bankruptcy, including mortgage arrears, CCJs, defaults, missed payments and debt management plans will be considered as settled. Your credit file will essentially be reset from the day of your bankruptcy and after being discharged you will be able to begin to rebuild your credit file from the ground up.

If you have experienced credit problems after your bankruptcy, you might run into some additional problems when trying to obtain new credit. If you have been declared bankrupt in the past, lenders will already view you as a higher risk borrower than someone who has not experienced the same issues with credit. Although there are lenders willing to lend to discharged bankrupts, most will specify a requirement for a clean post-bankruptcy credit file.

The nature of any new credit problems will determine how large an effect they might have on the outcome of any future mortgage application. Although it is true that many lenders will immediately decline applicants with new credit issues post-bankruptcy, there are some who will still lend depending on the circumstances. The best course of action here is to obtain advice from a specialised broker who will discuss your situation with you in depth and develop the most appropriate action plan to help you to secure the best deal.

Which lenders currently accept mortgage applications from discharged bankrupts?

There are approximately 20 different lenders who will consider applications from discharged bankrupts. Some of these are mainstream lenders and some provide more specialist services and products for individuals with more complex credit histories. As every lender and every prospective borrower is different, without understanding your particular circumstances it is impossible for us to say whether you would meet the eligibility criteria of some or all of these 20 lenders.

Will I be eligible for a buy to let mortgage post-bankruptcy?

The short answer is that yes, it is possible to secure a buy to let mortgage if you have been made bankrupt in the past but your personal eligibility will be dependent on your current circumstances. Most lenders will only consider applicants who:

  • Can demonstrate a clean post-bankruptcy credit file
  • Have been discharged for more than 3 years
  • Currently own another property
  • Have a 15% deposit
  • Can demonstrate that they have a personal source of income

You should be able to demonstrate that you are receiving regular funds of at least £25,000 per annum from employment, self-employment or a pension.

Can I use equity in my home to repay bankruptcy debt?

Repaying bankruptcy debt can eliminate it from your credit record completely, provided that it is done within a set timeframe and in the correct way. This process is officially known as an annulment and can give people the opportunity to settle their debts and move forward with their lives.

Depending on the circumstances surrounding your bankruptcy, you might find this process difficult to navigate. There are, however, lenders who will facilitate refinancing for the purpose of settling debts and this process would allow you to progress through the process of remortgaging at a later date with a clean, bankruptcy-free credit file.

If you are currently in this situation, you will likely find it valuable to contact one of our specialist mortgage brokers to discuss your circumstances and the options available to you.

Be careful with credit applications

After bankruptcy, it is important to avoid making too many successive credit applications, even if they are for different products. Doing so could negatively impact your credit score and communicate to potential lenders that you are relying too heavily on credit to make ends meet. If you have been considering making multiple applications to identify and obtain the best possible deal available to you, utilising the expertise of a mortgage broker will ensure that your applications are strong and that you are sending them to lenders who are likely to approve you.

If your circumstances and credit file are not currently conducive to securing a mortgage, don't give up on your desire to own your own home. Understanding the steps that you need to take next will help you to ensure that you are in the best possible position to secure the right mortgage for you, at a rate that you can reasonably afford, as soon as possible.

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